PRINCIPLE OF DOUBLE

ENTRY & TRIAL BALANCE

Prepared by: Nurul Hassanah
Hamzah
Double Entry system

Ledger Entries

Balancing off ledgers accounts

Trial Balance

Chapter’s Outlines
Duality Concept

• Each transaction has a two sided

or dual effect on each parties A+ E = L+ O + R
involved in it (double entry)
• Known as DEBIT and (+) DEBIT (+)
CREDIT CREDIT
(-) CREDIT (-) DEBIT
Example – Double
Entry
• January 5 - Faris Buy RM
200 goods by cash. A+E = L+O+
• Effect : decrease (-) asset R
(cash), increase (+) expenses
(purchase)
• Double entry
DEBIT (+) CREDIT
• Debit purchase
200 CREDIT (-) DEBIT
• Credit Cash
200
 Account
An act of
An
entering an
individual
Consist of amount on
accounting
three parts: the left side
records of
Title of of account is
increase and Referred as
account called
decrease in T-account
debiting an
specific or ledger Left side or account and
assets, account Debit side making
liability,
Right side or entry on the
capital,
Credit side right side is
revenue and
crediting the
expenses
account.
The T-Account
Account Title
Date Particulars Amount Date Particulars Amount
Assets (RM) (RM)
Liabilities
And
Capital

Left-hand side of the page Right-hand side of the page

DEBIT CREDIT
Double entry means that every transaction is recorded twice. Thus, in
accounting, all transactions have dual effect. Once to the debit side of a
ledger account and once to the credit side of another ledger account.
 Class of account Effect of Entry in the
RULES TO transactions accounts

IDENTIFY Assets An increase

A decrease
DEBIT
CREDIT
WHETHER Capital An increase CREDIT
TRANSACTI A decrease DEBIT

ON SHOULD Revenues An increase

A decrease
CREDIT
DEBIT
BE DEBITED Expenses An increase DEBIT
OR A decrease CREDIT

CREDITED: Drawings An increase

A decrease
DEBIT
CREDIT
Liabilities An increase CREDIT
A decrease DEBIT
ANALYSIS OF
TRANSACTIONS
The following steps should be followed in analyzing the transactions:

 Determine the impact of the transaction on the two items involved.

 Determine whether an asset, a liability, owner’s equity, revenue, or expense account is affected by the
transaction.

 For each item (“account”) affected by the transaction, determine whether the account increases or decreases.

 Then determine whether each increase or decrease should be recorded as a debit or credit
Example:
ASSETS • Jan 1 Bought computer worth RM2,500 by
cheque.
• Effect of transaction?
• Double entry rule?
• Ledger entries?
• Ledger account?
Example: • Jan 3 Bought office equipment
liabilities worth RM1,000 on credit from Jati
Perabot.
• Effect of transaction?
• Double entry rule?
• Ledger entries?
• Ledger account?
Example:
capital • Jan 4 The owner deposited RM10,000 into the
business bank account.
• Effect of transaction?
• Double entry rule?
• Ledger entries?
• Ledger account?
Example: expenses
• Jan 6 Paid rent amounting to RM500 by cheque.
• Effect of transaction?
• Double entry rule?
• Ledger entries?
• Ledger account?
Example:
Income • Jan10 Received cash commission of RM2,000
• Effect of transaction?
• Double entry rule?
• Ledger entries?
• Ledger account?
Example:
Inventory
Increse in inventory is due to: purchases of
goods and sales returns or returns inwards.

Jan17 Bought goods worth RM 400 from

Aladdin by cheque
Effect of Double entry Ledger Ledger
transaction? rule? entries? account?
 DISCOUNT
Discount

Trade discount Cash discount

Discount given by seller to encourage Discount received

buyer buy in bulk (large quantities)

Deducted directly from the total

selling price and will not be recorded Discount allowed
in the books of accounts.
TRADE
DISCOUNT
• A deduction in price given to a trade
customer when calculating the price to be
charged to that customer for some goods
• It does not appear anywhere in the
accounting books
• It does not appear anywhere in the financial
statements
• Given to attract traders to buy in large
quantities (bulk buying)
Example:
Aminah bought goods in bulk from Aman Bhd worth
RM4,000 and payment is made by cheque. She was
given a 5% trade discount. (Trade discount is not
recorded in any books of the business)

Solution:
From Aman Bhd point of view:
Trade Discount = 5% x Rm4,000 = RM200,
Thus, sales only RM3,800.
Record: Dr Bank 3,800
Cr Sales 3,800
Cash Discount

• Is an allowance given by seller to the buyer

• To encourage the buyer to make prompt payment.
• There two types of cash discount
• Discount allowed- discount give to the buyer-
deducted from sales
• Discount received- discount given by the
seller-deducted from purchases
• They are NOT a deduction from selling price
• Both will be recorded on SOPL
Cash Discount(cont..)

1. Discount Allowed/ Sales discount

• A deduction from the amount due
given to customer who pay their
accounts with the time allowed
Cash Discount
(cont..)
2. Discount Received
• A deduction from the amount due
given to a business by a supplier
when their account is paid before
the time allowed has elapsed.
 Both are expenses to the business

Carriage
Inwards & However, carriage inwards (postage/delivery cost expenses from
supplier to the business) will be recorded in SOPL as part of the cost of
Carriage goods purchased

Outwards
Carriage outwards (postage/delivery cost to customer) is recorded in
SOPL as operating expenses
Dr Carriage Inwards a/c or Carriage Outwards
• Cr Cash or Bank a/c
 • Purpose:
Balancing off • To determine how much balance left in each
ledgers accounts (pg account/balance at the end of month

61)

Debit balance Total Debit > Total

Credit
Credit Total Credit > Total
balance Debit
Zero balance Total Debit = Total
Credit
 • At the end of a period (usually a month) the accounts
are balanced:

Balancing
• that is the debit and credit entries are totaled and
the difference is then entered as the balancing
figure or simply called (imaginatively of course,

off Accounts
the “balance”).

and the Trial

• The balance of all the accounts are listed in a statement
called the Trial Balance; which lists the accounts
according to the “balance”, in other words, the debit

Balance
balance is listed on the debit side and the credit balance
is listed on the credit side.
• HOWEVER LEDGER ACCOUNTS WITH ZERO
BALANCE ARE EXCLUDED FROM TRIAL
BALANCE.
TRIAL BALANCED (PRE-
ADJUSTED)

 A trial balanced is a list of all ledgers accounts with balances at a particular date.

 The Trial Balance is an important document in that it checks the accuracy of the entries in the recording process; although this list does not
detect all the inaccuracies and errors.

 Rules:
Total Debit Balances = Total Credit Balance

 The Trial Balance then serves as a basis of preparing the:

FINANCIAL STATEMENTS.
Trial Balance
A listing of all account balances in the ledger (T account) according to the debit and
credit balance.

If the double entry principle is applied correctly, the total debit balances should
equal to the total credit balances.

Total debit balances = Total credit

balances
PURPOSES OF A TRIAL BALANCE

• To prove/check whether the debits equal to the credits balances or not

• To identify/uncover any error in journalizing and posting
• To assist the preparation of the financial statement
 XYZ TRADING
TRIAL BALANCE AS AT 31 DECEMBER 2010
FORMAT
OF TRIAL
Particulars (Name of accounts) Debit
(RM)
Credit
(RM)
BALANC
Assets account XXX E
Expenses account XXX
Income/ Revenues account XXX
Liabilities account XXX
Owner’s Equity XXX
Drawing account XXX
T - Format of Trial Balance
DIA Sdn Bhd
Trial balance as at 31 December 2008
Debit Credit
Account RM Account RM
Cash 500 Bank overdraft 700
Debtors 1,200 Creditors 1,100
Purchases 4,200 5-year Loan 10,000
Drawings 80 Sales 9,000
Return inwards 60 Return outwards 90
Expenses 3,000 Capital 20,000
Motor Vehicle 10,000
Building 21,850

40,890 40,890

06/19/2021 28
Statement Format of Trial Balance
DIA Sdn Bhd
Trial balance as at 31 December 2008
Account Debit Credit
Cash 500
Debtors 1,200
Purchases 4,200
Drawings 80
Return inwards Asset, Drawing, Expense 60
Expenses 3,000
Motor Vehicle 10,000
Building 21,850
Bank overdraft 700
Creditors 1,100
5-year Loan LIABILITY, EQUITY, REVENUE 10,000
Sales 9,000
Return outwards 90
Capital 20,000
40,890 40,890 29
 ERRORS IN TRIAL BALANCE
Errors AFFECTING Trial Balance
agreement:-
i.e. Trial Balance not balanced
Total Debit ≠ Total Credit
Errors NOT AFFECTING Trial
Balance agreement:-
i.e Trial Balance balanced
Total Debit = Total Credit

1. Single entry.
2. Errors of transposition. 1. Error of omission
3. Errors in addition. 2. Error of commission
4. Posting to incorrect side of 3. Error of principle
accounts. 4. Complete reversal of entries
5. Errors in trial balance itself. 5. Error of original entry
Errors AFFECTING Trial Balance
Agreement
• Single entry/Omission of part of an entry
• Only one aspect of transaction is recorded

• Errors of transposition
• Figures are written in the wrong order that is debiting as RM1,329 and crediting the accounts with
different amount as RM1,392

• Errors in addition in ledger accounts

• Addition errors when adding the debit and credit sides of an account. It will cause the balancing figures
to be incorrect

06/19/2021 31
Errors AFFECTING Trial Balance
Agreement
• Posting to the incorrect sides of an account
• The debit and credit side of transaction is posted to the wrong side of an
account
• There are two debit or two credit

• Errors in trial balance itself

• Error when transferring the account balances from the ledger into the trial
balance
Errors
Error of omission

• A transaction is totally omitted from the

NOT books

effecting Error of commission

Trial
• A correct amount is entered but in the
wrong person’s account

Balance Error of principle

Agreement • An item is entered in the wrong class of

account

33
 Errors NOT effecting Trial
Balance Agreement
Error of original entry
The original figure is incorrect, yet double entry observes using the incorrect
figures

Complete reversal of entries

Correct accounts are used but each item is shown on the wrong side of
the account
THANK

YOU

=D